Downing Street has warned Conservative MPs that the government would end up in "no man's land" and face chaos if its controversial health reforms are dropped or substantially altered.

The hard-hitting message indicates that the coalition could be heading for a major clash next week on the NHS. This comes after the Liberal Democrat president said the health and social care bill should have been dropped or "massively changed" last year.

In an intensification of the Lib Dems' campaign for wholesale changes to the government's health reforms, Tim Farron called for the removal of proposed new rules on competition in the NHS.

But Downing Street made clear it was uneasy about embarking on further wide-ranging changes to the health and social care bill, which is to be considered by peers next week. Lib Dem peers are to table a series of amendments on competition.

In a briefing document for Tory MPs meeting at an awayday session – held in Westminster's Portcullis House – Downing Street and the health secretary, Andrew Lansley, warned of serious consequences if the bill were watered down or abandoned. "If we changed or altered the bill now, we would end up in a no man's land, and chaos," the document said, according to a report in the London Evening Standard.

Tory MPs highlighted their anger over Lib Dem tactics by giving Lansley a rapturous reception at the awayday. Some Conservative MPs fear that Nick Clegg is planning to renege on an undertaking he gave to David Cameron to support the bill, if the Lib Dem amendments in the Lords are not accepted.

One amendment would remove a planned duty for the Competition Commission to review the development of competition in the health service. Monitor, the NHS regulator, would retain its duty to oversee competition.

Farron endorsed the Lib Dem amendments, which are also being tacitly supported by Clegg. Asked on ITV Granada's Party People what should happen to the legislation, he said: "Take out all the new competition in the bill. If that was to happen, then the bill may as well proceed because then it becomes about democratising and tidying up the mess that was left behind by Labour."

He added: "What I want is for the Lords to introduce changes that will remove the new competition elements from the bill and I would like the government to give way on those things. It's all to play for."

Farron said the legislation should have been dropped or overhauled at an earlier stage. "Lots of us are guilty for allowing it to get as far as it has done now," he said. "Basically, this should have been dealt with far earlier in the cycle."

Asked whether the bill should have been dropped, he said: "Dropped, massively changed."

Farron said the government was wrong to ignore the concerns voiced by members of the medical profession. Cameron was criticised earlier this week after excluding key groups, such as the BMA and the Royal College of GPs, from a health summit in Downing Street. The Lib Dem president said it would be "absolutely stupid for anybody to ignore what is being said" by health professionals.

Downing Street said ministers would listen to critics but indicated that the prime minister believed he had made significant changes during a "listening exercise" last spring. The prime minister's spokesman said: "We have said we will continue to listen as this bill proceeds through the Lords, but we had a listening exercise last year and as a result many significant changes were made to that bill.

"We think the reforms are the right ones. It is going to be an ongoing process explaining to people these reforms and, in particular as we implement these reforms, showing how they are working to the benefit of patients."